An Introduction to Non-Tariff Barriers and WTO Rules


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This is a lecture that I recently gave at the Ministry of Trade in Indonesia to kick off a series of lectures I will perform there over the final months of 2013 on NTBs and what Indonesia can do about them

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  • UNCTAD Definition of NTM: “policy measures, other than ordinary customs tariffs, that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices, or both” For all their potentially trade-restricting effects, however, NTMs should not be thought of as merely what their name suggests—a trade policy instrument like a tariff but in a different legal form. They are fundamentally different from tariffs in a number of ways. First, there are different types of NTMs. In the new classification adopted by the United Nations Conference on Trade and Development, the term covers measures as different as quotas, technical regulations, SPS measures, preshipment inspection, and forced channels. Examples of NTMs quantitative restrictions technical regulations, or anticompetitive measures Global Trade Alert (a network of think tanks around the globe) shows that the number of non-tariff measures (NTMs)—including quotas, import licensing requirements, and discriminatory government procurement rules—increased in the first two years post-2008, and rose sharply in 2011. India, China, Indonesia, Argentina, the Russian Federation, and Brazil together accounted for almost half of all the new NTMs imposed worldwide NTMs may be legitimate measures addressing market or coordination failures and achieving a wide range of policy objectives, from consumers’ safety and health to environment purposes. However, when poorly designed, they can hurt competitiveness and unnecessarily raise the cost of living. Restricted access to key inputs and intermediate products, and cumbersome procedures for import and export licenses and permits cause delays and extra costs to firms, hurting small and medium enterprises particularly and dampening diversification efforts. NTMs can also increase the cost of important food staples and household consumer products, putting more pressure on the poorest. While some non-tariff measures evidently do not intend to restrict trade, they are considered non-tariff barriers (NTBs) when they are overly trade restrictive. The challenge is to identify ways to reduce the trade-impeding effect of NTMs while ensuring that legitimate regulatory objectives are attained.
  • An Introduction to Non-Tariff Barriers and WTO Rules

    1. 1. An Introduction to Non-Tariff Barriers and WTO Rules Simon Lacey | Last Updated 15 August 2013
    2. 2. Outline  Some definitional issues  A few words on history  A reminder of some core WTO principles  The main rules and agreements governing NTBs  Some disputes from the past, present and future  A few NTBs currently affecting Indonesia  Solving problems arising from NTBs Simon Lacey 2 |
    3. 3. Definitions  Non-Tariff Measures (NTMs): generally defined as measures other than tariffs, which have an effect on trade.  NTMs generally on the increase, particularly since the GFC and particularly in handful of medium to large middle- income countries  Although NTMs often pursue legitimate policy objectives, if they are overly trade restrictive, they are considered Non- Tariff Barriers (NTBs)  Non-Tariff Barriers (NTBs): defined as selected (non-tariff) measures that discriminate against foreign products, directly or indirectly, de jure or de facto, or where trade restrictiveness, whether or not deliberate, exceeds what is needed for the measure’s non-trade objectives Simon Lacey 3 |
    4. 4. Classifying NTMs Simon Lacey 4 | Source: International Trade Center (ITC)
    5. 5. Historical Trends for NTBs  As tariffs were successfully negotiated downwards after 1947, the incidence of non-tariff barriers increased in both relative and absolute terms.  The accession of Japan to the GATT in 1955 which itself used a complex system of broadly entrenched and complex behind-the- border policies to control the domestic market for everything from autos to photographic film;  The inventory of NTMs developed under the GATT in the years between the end of the Kennedy Round and the start of the Tokyo Round also highlighted the importance that NTBs had assumed as tariffs had been on the decline  Adoption of a series of plurilaterial “codes” in the Tokyo Round that later became part of the Single Undertaking in the Uruguay Round that specifically addressed non-tariff barriers Simon Lacey 5 |
    6. 6. Some Core WTO Principles  Non-discrimination  Transparency  Predictability  Proportionality (“no more burdensome than necessary”)  Regulations must be necessary to achieve a legitimate policy objective  Regulations must not be applied in just a manner as to be disguised barriers to trade or unnecessarily restrictive of trade Simon Lacey 6 |
    7. 7. WTO Rules on NTBs Specifically  GATT Article III (National Treatment)  GATT Article VI and the Anti-dumping Agreement  GATT Article VI and the Agreement on Subsidies and Countervailing Measures  GATT Article VII and the Customs Valuation Agreement  GATT Article XI General Elimination of Quantitative Restrictions  GATT Article XII (Balance of Payments Restrictions)  GATT Article XVII (State Trading Enterprises)  TBT Agreement  SPS Agreement  WTO Agreement on Pre-shipment Inspection  WTO Agreement on Rules of Origin  WTO Agreement on Import Licensing Procedures Simon Lacey 7 |
    8. 8. WTO Dispute Settlement and NTBs  Because tariffs have ceased to be the main obstacle to trade, and because any controversies in terms of the legal interpretation of Members’ tariff obligations have long since been settled (in the early years of the GATT mostly), dispute settlement at the WTO (involving trade in goods) has predominantly concerned NTBs.  Some examples of major cases that concerned NTBs: • US – Gasoline (DS 2) • EC – Bananas (DS 27) • EC – Hormones (DS 26) • Japan – Film (DS 44) • US – Shrimp (DS 58) • US – Cool (DS 384,386) • US – Clove Cigarettes (DS 406) • Indonesia - Horticultural Products (DS 455) Simon Lacey 8 |
    9. 9. Some NTBs Affecting Indonesia Palm oil exports to the US being potentially negatively impacted by pending rule-making by the EPA This is a NTB and market access issue involving the legal interpretation of what constitutes a technical barrier to trade, as well as of various non-discrimination obligations. The European Renewable Energy Directive This is a NTB and market access involving the legal interpretation of WTO commitments and obligations under the GATT, and the TBT Agreement. Plain-packaging tobacco products in Australia and New Zealand This is potentially is a non-tariff barrier in the form of a denial of trademark protection. Salak exports to China are being obstructed domestic regulations on permitted cadmium levels This is a non-tariff barrier and market access issue involving the legal interpretation of the domestic regulation's compatibility with the WTO SPS Agreement Simon Lacey 9 |
    10. 10. Solving Problems with NTBs Three ways to solve concerns arising from the imposition of NTMs: Raising concerns at the WTO technical committees Enforcing rights through the WTO dispute settlement mechanisms; and/or Through trade negotiations. Simon Lacey 10 |
    11. 11. Solving trade concerns arising from NTMs (cont.)  WTO technical committees provide a forum for the solution of concerns arising from the imposition of NTMs. Example: TBT Committee and SPS Committee, for NTMs enacted as technical regulations and SPS measures, respectively.  Some data on the issues raised before the TBT Committee as STCs - 365 so-called Specific Trade Concerns (STCs) were raised before the TBT Committee from 1995 to 2012. 94 were raised in 2012 alone; - The most commonly-stated objectives of the measures under discussions are: health and safety, and environment protection; - WTO Members maintaining most of the measures discussed at the Committee are the EU, China and the US. Simon Lacey 11 |
    12. 12. Solving trade concerns arising from NTMs (cont.) Some data on the issues raised before the SPS Committee:  344 STCs were raised in the SPS Committee meetings from 1995 to 2012. 16 were raised in 2012 alone;  The stated objectives include food safety (30%), plant health (24%), animal health and zoonoses (40%) or other issues, such as certification requirements (6%);  WTO Members raising STCs include: developing country WTO Members (89 STCs); developed country WTO Members (212 STCs); and LDC WTO Members (5 STCs); and  In many occasions, STCs are supported by more than one WTO Member. In these instances, the measure under discussion was maintained by: a developed country Member in 202 cases; developing country Member in 178 cases; and an LDC Member in 1 case Simon Lacey 12 |
    13. 13. Solving trade concerns arising from NTMs (cont.)  WTO/ASEAN/bilateral dispute settlement mechanisms: established to settle commercial disputes and seek redress of the alleged violations of countries’ rights under WTO/ASEAN/bilateral trade agreements.  Binding nature of the dispute settlement mechanism as a necessary element to ensure enforceability of the rights (and predictability of commercial concessions).  Trade negotiations: possible forum to solve trade concerns arising from the imposition of NTMs. Examples: WTO DDA Round; EU-Indonesia FTA. Simon Lacey 13 |
    14. 14. Solving trade concerns arising from NTMs (cont.)  A key tool to monitor and assess NTMs: transparency requirements, which include publication of the measures and notification. WTO and ASEAN rules are clear and call for the establishment of effective instruments to achieve transparency: enquiry points, notification authorities, ATR, NTRs, etc.  It is critical to make use of these instruments. Coordination with domestic businesses, traders and trade associations must be enhanced and built into national schemes.  Dont forget the power and support that can be received from your “allies” in the importing countries. Simon Lacey 14 |
    15. 15. Want to know more? Simon Lacey 15 |